‘Be the first to spot anomalies’: How int’l FAs can fend off criminal activity
You are looking into your book of business. One of your big accounts is having some problems with a very large security. The security is there in the books, but for some reason the system cannot price it properly or account for it. What if the security is fake? What do you do then?
It has an ISIN or CUSIP number; for that reason it was accepted by your bank/broker dealer system, but it is not what it appears to be. In some cases, special notes or vehicles are created to look and act like other securities and the main purpose is to use your statement to commit a financial crime or show a false asset holding record to authorities.
This is one of the many war stories I have encountered over 30 years of private banking. In the above-mentioned case, the sovereign bond lookalike was for $1 billion. When the issue is with a client’s behavior, it is not much different.
Generally, if the story is too good to be true, it really is too good to be true.
We all know how difficult it is to obtain and hold onto clients in the international wealth management industry; the years we can spend cultivating client X or family Y to gain more share of their assets to grow our portfolio of business. So, when all of sudden a very profitable transaction shows up unsolicited (as is almost always the case) or a very large deposit heads your way, raise your antennae and pay careful attention.
For the most part, you know very well the pool of clients, region and type of business you go after. You know who the key players in the area are, whether they are clients of yours or not, and also what type of financial assets they like to hold and trade.
Always be on the lookout for the leaders of opinion, those who your clients talk about. What are you hearing in terms of these leaders’ portfolio preferences? If clients are from country X, the home bias will be to hold a significant part of their savings in assets from country X, and in times of high volatility they can stomach known investments with more resolution.
Ball is in your court
Today, financial institutions are very focused on money movements. Since the events of 9/11, one of the main fields to combat terrorist organizations is to deprive them of sources of financing for their nefarious activities.
Usually, banks can easily spot money movements that do not make economic sense or might target a questionable region or country. But when it is about securities holdings or regular trading activity the banks have less experience and rely more on their professionals as the first line of defense.
This is very important — your financial institution puts serious trust in your judgement to spot abnormal activity. After all, you are the one in constant communication with your client, and you know very well their patterns of behavior: who trades often and who doesn’t; who you talk to every day and who you talk to only once a quarter; what kind of assets they prefer to own.
As much as banks wish they did, they still do not have artificial intelligence smart enough to spot changes in behavior — but you do.
You are aware of how your book of business behaves at all times, and you should be the first one to spot any anomalies.
Anything that deviates significantly from the norm should be a cause for concern. If you are not sure, ask your superiors or, more importantly, talk to legal and compliance. Once you have done and documented that, if anything proves to be some form of wrongdoing, you will be fully covered.
Your job is to alert the system that something seems off. You don’t have to be certain, nor is it expected from you to conduct any type of special investigation — that is the job of legal and compliance and other groups like the Special Investigation Unit, usually staffed by former law enforcement people, the Foreign Corruptions Practices office, the Ofac group and many others.
They are the experts, but you are the first soldier in defending your organization from criminal activity and the most important person in defending your reputation in the industry, your most valuable asset.